Real Estate Bust Hasn’t Dimmed Americans’ Faith in Real Estate

As reported by the Wall Street Journal

Despite an extended slump in real-estate prices, most Americans still believe homes are the best investment, according to this a survey released today by the Pew Research Center.

According to the results of a telephone survey conducted in March, Pew found eight-in-ten adults believed a home was the best long-term investment a person could make.

This isn’t to say that Americans faith in real estate is unflappable. The “intensity” of the public’s faith has fallen off, according to the survey, with 37% of respondents saying they “strongly agree” that homeownership is the best investment, compared with 49% from a CBS News/New York Times survey conducted two decades ago, Pew said.

There is also some evidence that the next generation views real estate with a more pessimistic eye. According to Pew: “Adults ages 65 and older are more sold on the investment value of homeownership than any other age group. Some 48% of this older cohort agree that homeownership is the best long-term investment a person can make, compared with 39% of those ages 50 to 64; 32% of those ages 30 to 49; and 35% of those ages 18 to 29.”

 

Signed Contracts Needed to Support Mechanics Lien in Massachusetts

Written for the Association of Corporate Counsel by Hugh J. Gorman, III of the law firm of Prince Lobel Glovsky & Tye LLP.

The Massachusetts District Court Appellate Division recently upheld a municipal court trial judge’s order dissolving a mechanic’s lien because written proposals betweena contractor and a property owner were never signed.

In the case of Petrucelli Construction Co., Inc. v. Hirain Barrios, the appellate division ruled that Massachusetts law requires that written contracts must be “signed by the party to be charged” in order to be enforceable. The mechanic’s lien statute G.L.c. 254, § 2A defines a written contract as “any written contract enforceable under the laws of the Commonwealth.”

In Petrucelli, because the contractor’s three proposals to the real property owner were never signed, there was no enforceable written contract upon which a mechanic’s lien could be founded. As a result, the appellate division upheld the trial court’s dissolution of the contractor’s mechanic’s lien.

The Petrucelli decision is a bright line reminder to contractors that in order to maintain an enforceable mechanic’s lien, you must have a written contract signed by the real property owner. Thereafter, you must also strictly adhere to the steps and timetables set forth in M.G.L.c. 254 to perfect it.

Construction Indicators Show Economy Gaining Steam

Written by Associated Builders and Contractors.

Despite the loss of 1,000 jobs in March, the nation’s construction industry

Associated Builders and Contractors

unemployment rate edged down to 20 percent for the month, according to the April 1 employment report by the Labor Department. Year-over-year, construction employment is down by 36,000 jobs, or 0.6 percent. Today’s rate is lower from 21.8 percent in February and 24.9 percent posted in March 2010.
Nonresidential building construction now supports 658,100 jobs in the U.S. The sector added 2,600 for the month, but has lost 1,800 jobs, or 0.3 percent of job totals, on a year-over-year basis. The specialty trade contractor segment lost 6,700 jobs in March and has lost 41,000 jobs, or 1.2 percent, over the last twelve months. Heavy and civil engineering construction gained 2,400 jobs for the month and has added 25,100 jobs, or 3.1 percent, from March 2010.
In contrast, heavy and civil engineering construction gained 2,400 jobs for the month and has added 25,100 jobs, or 3.1 percent, over the past twelve months. The residential building construction sector added 600 jobs in March, but has lost 18,600 jobs, or 3.2 percent, compared to the same time last year.
Overall, the nation added 216,000 jobs in March, the largest monthly gain since March 2007. The private sector added 230,000 jobs for the month while the public sector shed 14,000 jobs. Year-over-year, the nation has added 1,300,000 jobs, or 1 percent. The national unemployment rate now stands at 8.8 percent.
Analysis“The employment estimates for March indicate that the nation’s economic recovery continues to gain steam,” said Associated Builders and Contractors Chief Economist Anirban Basu. “While high and rising gas prices are likely to slow the pace of momentum as we approach the summer months, 2011 is poised to be a solid year of progress for America’s economy.
“Unfortunately, the recovery in nonresidential construction has scarcely begun. Specialty trade contractors continue to hemorrhage jobs in large numbers, indicating that the capacity to supply construction services continues to exceed demand,” said Basu. “This had been predicted, at least to a certain extent. With publicly financed construction no longer expanding and with many privately financed activities not yet in recovery mode, the overall level of demand continues to be stagnant.
“However, there are leading indicators, including ABC’s own Construction Backlog Indicator, that suggest that the recovery of privately financed construction will begin sometime later this year,” Basu said. “Evidence the fact that heavy and civil engineering construction added 2,400 jobs in March, perhaps a reflection of improvement to come as projects now in various stages of planning begin to break ground in larger numbers later this year and in 2012.”

Source for this post was AmeriSurv.com.

IRS Gives Priority to Mechanics Liens

In a general victory for contractors and suppliers owed money on a residential project, the IRS published final regulations (TD 9520) that govern the validity and priority of federal tax liens under IRC § 6323.

Under IRC § 6321, the federal government has an automatic tax lien against any person who does not pay federal tax for which they are liable after the government demands payment. This lien extends to all that person’s property and rights to property. Section 6323 provides that a federal tax lien is only valid against certain persons if a notice of federal tax lien (NFTL) is filed; that section also generally addresses the validity and priority of federal tax liens.

Numerous amendments to section 6323 have been made since 1976 but until now have not been reflected in the regulations. The final regulations published on Monday reflect these changes to the law.

The recently enacted regulations, which became effective on April 4, 2011, specify that a federal tax lien will not supersede a valid mechanic’s lien against a personal residence in certain cases.

This regulation entitles those who file mechanics liens to higher priority and more of a chance to get the money for which they worked so hard. The draft of the relevant section is cited at length below:

(g) Residential property subject to a mechanic’s lien for certain repairs and improvements—(1) In general. Even though a notice of a lien imposed by section 6321 is filed in accordance with § 301.6323(f)-1, the lien is not valid against a mechanic’s lien or (as defined in § 301.6323(h)-1(b)) who holds a lien for the repair or improvement of a personal residence if—Show citation box
(i) The residence is occupied by the owner and contains no more than four dwelling units; andShow citation box
(ii) The contract price on the prime contract with the owner for the repair or improvement (excluding interest and expenses described in § 301.6323(e)-1) is not more than $6,890, effective for 2010 and adjusted each year based on the rate of inflation.Show citation box
(iii) For purposes of paragraph (g)(1)(ii) of this section, the amounts of subcontracts under the prime contract with the owner are not to be taken into consideration for purposes of computing the $6,890 prime contract price. It is immaterial that the notice of tax lien was filed before the contractor undertakes his work or that he knew of the lien before undertaking his work.

Minnesota Law Often Allows Mechanics Lien Top Priority

Under Minnesota law, work completed after a mortgage is granted and recorded can, in some situations, nonetheless give rise to a mechanic’s lien that has higher priority than the mortgage. If, before the mortgage was granted, any contractor completed “actual and visible” work on the land in connection with the same improvement, then the later work, even if completed by a different contractor, relates back to that earlier work and the associated lien is superior to the mortgage interest. This potential to create a lien with a higher priority than a mortgage is important because it allows the contractor to recover a greater share of the value of its work upon foreclosure when the total encumbrances exceed the value of the property.

Nevada Supreme Court Rules on Mechanics Lien Priority

As reported by the Las Vegas Sun on March 3, 2011:
“The Nevada Supreme Court has ruled that a bank has priority in collecting on its deed of trust after two multimillion-dollar, 20-story condominiums defaulted on their loan in Las Vegas.

The court said Corus Bank had a preceding place over a mechanics lien, filed by J.E. Dunn Northwest Inc., that was owed for its pre-construction and construction work for Midbar Condo Development.

In September 2008, Dunn filed a mechanic’s lien for unpaid services. A few weeks later Midbar defaulted on the loan and a dispute arose between Corus Bank and Dunn regarding the priority of deed of trust and the mechanic’s lien.

District Judge Mark Denton issued a pre-trial summary judgment in favor of Corus Bank, which has become Corus Construction Venture. The construction contract was for $140.5 million.

The court, in an opinion written by Justice James Hardesty, said the law clearly requires that work must be visible before a mechanic’s lien can be filed to take priority over the bank’s deed of trust.

An inspector found that no construction activity at Las Vegas Boulevard and Shellbourne Avenue had occurred on the property as of the date Corus Bank recorded its deed of trust, even though the deed was later than the mechanic’s lien.

Hardesty said pre-construction work must be visible before the mechanics lien can take precedent.

The court disagreed with the contractor, who argued that visible work had been done when an architect’s sign had been placed on an adjacent property and power lines were removed.

In his decision, Hardesty wrote the court concluded that ‘commencement of construction’ plainly “requires visibility of on-site work in order for a mechanic’s lien to take a priority position over a deed of trust…”

Mountain Law: Contractors: Beware the mechanic’s lien trust fund statute

In Colorado, the mechanics lien trust fund statute results in many a contractor facing serious consequences for not properly paying their subcontractors and suppliers. Noah Klug of the The Klug Law firm recently published an article for the SummitDaily.com, entitled Mountain Law: Contractors: Beware the mechanic’s lien trust fund statute, which lays out the requirements and consequences of the mechanics lien trust fund statute. The article follows here:
A common practice of contractors is to juggle funds between various projects as a way of managing cash-flow issues and trying to keep demanding subcontractors and material suppliers satisfied. When this system breaks down and money is not available to pay current bills, contractors can face serious consequences under a Colorado law known as the Mechanic’s Lien Trust Fund Statute. Here is an overview.

The Trust Fund Statute provides that funds received by contractors on a project are held in trust for the benefit of subcontractors and material suppliers. If a contractor receiving the funds does not pay the subcontractors and material suppliers when due, he will be personally liable for the funds (even if he is operating through an entity). The liability extends to anyone who controlled the finances. The statute permits a court to award judgment for three times the amount that was unpaid plus litigation costs, interest and attorney fees.

The Trust Fund Statute requires a contractor to pay subcontractors and material suppliers before paying his own operating expenses. In other words, it is not a defense for a contractor to claim that he did not have money to pay subcontractors and material suppliers because the money was used for other project expenses.

The Trust Fund Statute applies to all funds disbursed on a project even if they were not intended to pay subcontractors and material suppliers. For example, if funds are disbursed to a builder who also owns the land for the purpose of paying a land loan, the builder can be liable for those funds if subcontractors and material suppliers do not get paid.

The Trust Fund Statute is designed to protect subcontractors and suppliers from dishonest or profligate contractors, but the statute does not require a showing that the defendant contractor was dishonest or profligate. Even an honest contractor can be liable under the statute if he becomes over-extended.

The Trust Fund Statute permits claims to be made against contractors by subcontractors, material suppliers and also property owners who hire contractors. An owner has a claim against her contractor even if there are no unpaid subcontractors or material suppliers if the contractor accepts payment and then fails to do the work required.

Contractors cannot avoid their liability under the Trust Fund Statute by filing bankruptcy because bankruptcy protections do not extend to funds held in trust. So, is there any way a contractor can limit liability under the Trust Fund Statute? Yes. First and foremost, contractors must keep detailed records of all expenditures. They will be able to avoid liability for all amounts that were properly paid to subcontractors and material suppliers, so they should make sure that they can document these amounts. Rather than maintain a single bank account for all projects from which all funds are deposited and withdrawn, it is a better practice to maintain individual bank accounts for each project to show the funds that were distributed on that project. This is particularly important when a contractor uses the same subcontractors and material suppliers on multiple projects.

Second, it appears that subcontractors and material suppliers can waive their rights under the Trust Fund Statute in their contracts with the contractor. Contractors should consider adding waivers to their contracts (and, of course, subcontractors and materials suppliers should resist this). It is unclear under Colorado law whether an owner can contractually waive a claim under the statute.

The Trust Fund Statute can be a powerful weapon against contractors who fail to pay subcontractors and material suppliers, but contractors can limit their exposure through careful accounting and requiring contract waivers.

Noah Klug is principal of The Klug Law Firm, LLC, a general law practice in Summit County emphasizing real estate, business law and litigation. He may be reached at (970) 468-4953 begin_of_the_skype_highlighting              (970) 468-4953      end_of_the_skype_highlighting or Noah@TheKlugLawFirm.com.

Tennessee Mechanics Liens Subject to Notice of NonPayment

The last major changes to the Tennessee mechanics lien law took place in 1990. In that year, the Legislature enacted major modifications to the existing Tennessee mechanics’ lien law, with numerous miscellaneous changes made since 1990. The
1990 modifications are encapsulated within the following two major categories:

1. The Tennessee lien law provided more protection against mechanics liens to residential property than commercial property.
2. The “Notice of Nonpayment,” which is applicable to commercial property only.

Residential Requirements
The Tennessee legislature has eliminated all mechanics lien rights for residential real property for lower tier contractors. By statute, residential real property is defined as a building consisting of one dwelling unit in which the owner of the real property intends to reside, or resides as the owner’s principal place of residence, including improvements to or on the parcel of property where the residential building is located. By statute, residential property also includes buildings consisting of two, three, or four dwelling units where the owner of the real property intends to reside or resides in one of the units as the owner’s principal place of residence.

The residential real property lien exclusion applies only to lower tier contractors. It does not apply to any contractor contracting directly with the owner or who is in privity with the owner. Therefore, residential real property lien rights still exist when the owner contracts directly with the contractor. As a practical matter, many trade contractors who would normally be involved as a subcontractor now refuse to perform any work unless such trade contractor contracts directly with the owner in order to preserve its lien rights.

The lien rights of a contractor contracting directly with the owner continue for one year after the date the improvement is complete or is abandoned and until the final decision of any lawsuit properly brought within that period of time for its enforcement. Any action to enforce the lien rights of a contractor contracting directly with the owner on a residential property project must be initiated within such one year period from date of completion of the improvement.

The time for the filing of a lien by one contracting directly with the owner may be accelerated by the filing of a Notice of Completion designating the date of completion by the owner or owner’s representative in the office of the Register of Deeds in the county where the real property is located. This has the practical effect of decreasing the time in which a lien may be filed. The Notice of Completion must contain:
1) the legal name of the owner or owners of
the real property;
2) the name of the prime contractor/contractors;
3) the location and description of the real property; and
4) the date of completion of the improvement. The Notice of Completion date designated therein shall not be less than ten days after the date of the recording of the Notice of Completion. Thus, the lien claimant must file its lien within such 10-day period. In the case of commercial real property, the expiration date for lien claimants to file their Notice of Lien shall be at least thirty days after the date of the recording of the Notice of Completion in the Register’s Office.

Commercial Projects
Every remote contractor or supplier not in privity with the owner with the respect to any improvement other than residential property must serve a Notice of Nonpayment within ninety days of the last day of each month within which labor or materials was provided and for which the remote contractor or material supplier was unpaid and intends to claim a lien. The Notice of Nonpayment must contain:
1) the name of the remote contractor and the address to which the owner and/or the prime contractor in contractual privity with the remote contractor may send communications to such remote contractor;
2) a general description of the work, labor and materials, etc. provided;
3) the amount owed as of date of the Notice;
4) a statement of the last date that the remote contractor or supplier performed work and/or provided labor, materials, services, etc., in connection with the improvement; and
5) a description sufficient to identify real property against which a lien may be claimed.

Any remote contractor or supplier who fails to provide the Notice of Nonpayment shall have no right to claim a lien under the mechanics’ lien law except for any retainage which may be held by the owner or prime contractor. This provision brings Tennessee in line with numerous other States that require pre-lien or preliminary notices prior to the filing of a lien. The basic purpose is to notify the owner/prime contractor of any potential lien claims. Without this provision, an owner is likely to be unaware of potential lien claims prior to the filing of such lien claims. In most instances, notice to the owner/prime contractor of potential lien claims will force resolution of such claims without suit.

After compliance with the Notice of Nonpayment provisions, a Notice of Lien may be filed within ninety days after completion of the work or within ninety days after substantial completion of the project. An action to enforce the lien must be brought within ninety days after completion of the project.

Retainage
The Tennessee lien law requires that whenever any contract for the improvement of real property provides that a certain amount or percentage of the contract price is retained (retainage), the retained amount shall be deposited in a separate interest bearing escrow account with a third party for the use and benefit of the contractor to whom such funds are owed. The funds held in escrow are subject only to the rights of the person withholding such retainage in the event of default by the contractor to whom such funds are owed. This provision of the lien law is applicable to all contracts or subcontracts for the improvement of real property when the contract price stated in the contract or subcontract is $500,000.00 or greater. This provision of the law is mandatory and may not be waived by contract.

Massachusetts Permits Design Professionals to File Mechanics Liens

Massachusetts has extended mechanic’s lien rights to architects, engineers and other design professionals. The law, which was signed by Mass. Gov. Deval Patrick on January 5, 2011, becoming effective on July 1, 2011, allows architects, other design professionals, and project managers to place a mechanic’s lien on property if they are not paid for their services. The elements of the new Massachusetts mechanics lien law include:
• The professional must record a notice of contract and a statement of account in the local registry of deeds. Deadlines are the same as those required for contractors, subcontractors and suppliers. The filings must be completed within 60 days after recording a notice of substantial completion or within 90 days of last providing professional services, whichever is earlier.
• Consultants that do not have a contract with the owner must have been approved in writing by the property owner.
• If there is a distribution after a property sale to satisfy more than one lien, the contractor and subcontractor lien claimants are to be satisfied before distributions to designer lien claimants.

According to an article entitled Design professionals may file mechanic’s liens in Massachusetts written by Stanley A. Martin, Esq. of the law firm Duane Morris, “the new law was promoted by the Boston Society of Architects and American Institute of Architects / Massachusetts, and was reportedly negotiated by subcontractor and lender groups at the table. Proponents of the law have told the construction community that, when placing liens, they would become ‘the canary in the coal mine’ for the benefit of contractors and subcontractors, and that may be the situation. However, an owner-architect dispute leading to a lien claim by the architect may also stop the flow of construction funds, potentially adding a new wrinkle to the process. That may give rise to issues in implementing the new lien rights.”

California Tightens Requirements Related to Mechanic’s Liens

If the past few years of chasing down money has served as a constant reminder, getting paid first –or sometimes at all– may require getting the property owner involved, especially when your contract is only with the general contractor or one of the subcontractors. A recent blog entitled Construction Contractors: Dotting Your “I”s and Crossing Your “T”s by OC Legal Buzz outlines these requirements:
Most contractors, and hopefully their attorneys, know that certain, timely notice and filing procedures can make the difference in asserting all available rights to ensure payment after the work has been done or the materials supplied. The typical scenario occurs where a debtor contractor/subcontractor has robbed Peter to pay Paul. However, one can also be an unwitting victim to issues between the lender and owner or owner and general contractor.
That said, the contractor/supplier is expected to be proactive when it comes to holding the property owner liable for one’s work and materials.
The California Civil Code requires a preliminary notice to be served on an owner within 20 days of beginning work or supplying materials. In short, if you fail to do so, you risk losing part or all of your claim against the property owner, based on the dates you provide work/materials and the date you serve the preliminary notice. This does not affect your legal claims against your direct debtor.
his is still the standard method for notice…but send it certified mail, return receipt requested.
The 90-90 Rule
Post-project rules of enforcement can be easily remembered as the “90-90 Rule.”
After the project is completed, you typically have a 90-day window (30 days in some instances) in which to record a mechanic’s lien against the property at the County Recorder’s Office. However, where only recording used to be sufficient, you must now also service a Notice of Lien to the owner and/or the construction lender or general contractor (Civil Code Sec. 3084). Failure to do so will deem your mechanic’s lien unenforceable. Just remember that, if you were the owner, you’d want to have up-front notice rather than being blind-sided.Assuming you properly record and serve your lien and notice, you then have 90 days in which to file suit against the property or your lien effectively goes stale and must be withdrawn. However, as of January 1, 2011, you must also record with the County Recorder what’s called a “lis pendens,” or action against the property, within 20 days of recording (Civil Code Sec. 3146). This is intended to put all purchasers and lenders on notice of your claim against the subject property. Though this recording used to be optional (any attorney worth his salt recorded them every time), it is now mandatory and any delay, even within the 20-day period, can cause your claim to become subordinate to a sale or encumbrance that occurs prior to this lis pendens recording. Failure to comply may result in seemingly unfair consequences.
Typically, your attorney will handle these timelines for you on the back end. However, most companies handle the preliminary notices themselves, so it’s important that company principals and their clerical staff handling the project files are aware of these changes. Don’t wait until Day 88, or 91 for that matter to contact your lien filing service or your attorney…they probably won’t be able to do anything for you at that point.